Quote of the Month
There is a tide in the affairs of men Which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life Is bound in shallows and in miseries. On such a full sea are we now afloat, And we must take the current when it serves Or lose our ventures. - William Shakespeare, The Tragedy of Julius Caesar, Act 4, Scene 3, 249-255
What I’m Reading:
1. How private equity ate the American economy
Why you should read it: In the New York Times, Brendan Ballou observes that the wider social effects of private equity firms have been almost wholly negative, destroying jobs, companies and the communities that depend upon both.
“Companies bought by private equity firms are far more likely to go bankrupt than companies that aren’t. Over the last decade, private equity firms were responsible for nearly 600,000 job losses in the retail sector alone. In nursing homes, where the firms have been particularly active, private equity ownership is responsible for an estimated — and astounding — 20,000 premature deaths over a 12-year period, according to a recent working paper from the National Bureau of Economic Research. Similar tales of woe abound in mobile homes, prison health care, emergency medicine, ambulances, apartment buildings and elsewhere. Yet private equity and its leaders continue to prosper, and executives of the top firms are billionaires many times over.”
“Why do private equity firms succeed when the companies they buy so often fail? In part, it’s because firms are generally insulated from the consequences of their actions, and benefit from hard-fought tax benefits that allow many of their executives to often pay lower rates than you and I do. Together, this means that firms enjoy disproportionate benefits when their plans succeed, and suffer fewer consequences when they fail… in nearly every private equity acquisition, private equity firms benefit from a legal double standard: They have effective control over the companies their funds buy, but are rarely held responsible for those companies’ actions. This mismatch helps to explain why private equity firms often make such risky or shortsighted moves that imperil their own businesses. When firms, through their takeovers, load companies up with debt, extract onerous fees or cut jobs or quality of care, they face big payouts when things go well, but generally suffer no legal consequences when they go poorly. It’s a ‘heads I win, tails you lose’ sort of arrangement — one that’s been enormously profitable.”
Why it matters: “By protecting favored tax benefits, firms receive disproportionate gains when their strategies succeed. But, insulated from liability, they face little consequence if those plans fail. It’s an incentive system that encourages risky, even reckless behavior…and is designed to work for private equity firms and no one else.”
2. Why Europe and America still see eye-to-eye on China, French presidential posturing notwithstanding
Why you should read it: Wall Street Journal columnist Greg Ip argues that the United States and Europe are more aligned on China policy than French President Emmanuel Macron’s delusions of grandeur may make it seem.
“In its geopolitical competition with the West, China has long sought to divide the U.S. from Europe… Appearances, though, are deceiving. In fact, the European Union has decisively changed its approach to China in the past year. Europeans use milder language than Americans, saying they wish to ‘de-risk’ their economic relationship with China, not ‘decouple.’ But in substance, European de-risking and American decoupling look much the same. Indeed, Europe is erecting economic defenses against China that in some cases go further than the U.S.”
“The convergence between Europe and the U.S. can easily be overlooked because of the absence of any coordination. Indeed, some European steps such as support for critical minerals and semiconductors are as much a reaction to the U.S. as Chinese industrial policy… Unfortunately for China, Europe’s assertive posture probably has more staying power precisely because it doesn’t reflect submission to U.S. leadership. Rather, it results from Europe’s own re-evaluation of China’s strategic and ideological direction, most of all its support for Russia since its invasion of Ukraine.”
Why it matters: “…actions speak louder than words, and Europe has in recent years erected a series of defenses against China. A partial list: The EU walked away from an investment treaty finalized with Beijing in 2020; enacted a ‘foreign subsidies regulation’ to investigate and punish government aid to foreign competitors; and agreed on an ‘economic coercion instrument’ to deter actions such as China’s embargo of imports from Lithuania over the opening of a Taiwan representative office there (the U.S. has no such law yet). The EU is also working on a law setting targets for domestic production and processing of critical raw materials such as rare earth elements, used in electronics, magnets and renewable energy, 98% of which come from China."
3. How the war in Ukraine changed NATO’s strategy to defend itself against Russia
Why you should read it: New York Times chief diplomatic correspondent Steven Erlanger outlines how NATO’s plans for responding to Russian aggression against frontline members have changed dramatically given Moscow’s conduct of its war against Ukraine.
“Russia’s invasion of Ukraine, the costliest conflict in Europe since World War II, has propelled the North Atlantic Treaty Organization into a full-throttled effort to make itself again into the capable, war-fighting alliance it had been during the Cold War… NATO is rapidly moving from what the military calls deterrence by retaliation to deterrence by denial. In the past, the theory was that if the Russians invaded, member states would try to hold on until allied forces, mainly American and based at home, could come to their aid and retaliate against the Russians to try to push them back.”
“…after the Russian atrocities in areas it occupied in Ukraine, from Bucha and Irpin to Mariupol and Kherson, frontier states like Poland and the Baltic countries no longer want to risk any period of Russian occupation… To prevent that, to deter by denial, means a revolution in practical terms: more troops based permanently along the Russian border, more integration of American and allied war plans, more military spending and more detailed requirements for allies to have specific kinds of forces and equipment to fight, if necessary, in pre-assigned places.”
Why it matters: “For the first time since the Cold War, the official said, East European countries will know exactly what NATO intends to do to defend them — what each country should be able to do for itself and how other countries will be tasked to help. And Western countries in the alliance will know where their forces need to go, with what and how to get there… The planning in NATO is already intrusive but will become more demanding and specific. Countries answer questionnaires about their capacities and equipment; NATO planners tell them what’s missing or could be cut or thinned… Now the demands will be tougher and more rigorous to bring the alliance back to a war-fighting capacity in Europe and make deterrence credible — to ensure that NATO can fight a high-intensity war against a rival, Russia, from the first day of conflict.”
4. How bad Chinese loans make it harder for poor countries to relieve their burdensome debts
Why you should read it: Financial Times reporters Robin Wigglesworth and Sun Yu detail how a spree of lending by Beijing over the past decade or so has made it extraordinarily difficult for indebted countries to dig themselves out of insolvency.
“While domestic laws and judges govern the bankruptcies of companies and individuals, there is no international law for insolvent countries — only a chaotic, ad hoc process that involves working through a hodgepodge of contractual clauses and tacit conventions, enduring tortuous negotiations and navigating geopolitical expediency… But this fragile patchwork is now under threat of unravelling completely due to the emergence of a new, disruptive, opaque and powerful force in sovereign debt: China."
“This flawed [sovereign debt resolution] process has now been further complicated—some say wrecked—by China’s vast lending programme across the developing world over the past decade. Many of these loans are opaque in size, terms, nature and sometimes even existence… Highlighting how China also appears to be leveraging these situations to undermine the western-designed global financial architecture, in January it called for international organisations such as the IMF and World Bank to participate in the debt restructuring. This would overturn half a century of convention that these organisations are 'super-senior’ creditors exempt from debt restructurings, as participating would imperil their ability to lend to other countries.”
Why it matters: “The potential [for financial chaos] is clear. The latest IMF data from the end of February indicates that nine poorer countries — such as Mozambique, Zambia and Grenada — are already in what it terms ‘debt distress’, while another 27 countries are at ‘high risk’ of falling into it. A further 26 more are on the watchlist… There are few solutions being floated around. The IMF in February announced a new Global Sovereign Debt Roundtable to bring together the full gamut of creditors and debtors, and hopefully thrash out ways to ‘facilitate the debt resolution process’. It is an initiative that few experts harbour much hope for… But most [experts] expect Zambia-like debt limbo to be the likeliest outcome for a lot of countries. ‘I suspect this is going to be a recurring problem,’ says [economist Carmen] Reinhart. ‘And the longer these countries are in the [debt] netherworld . . . the [more the] fabric of the country is affected.’”
5. Why American factory building is on the rise
Why you should read it: Wall Street Journal reporter John Keilman explores how increased manufacturing demand had lead to a “furious pace” of factory construction.
“Construction spending related to manufacturing reached $108 billion in 2022, Census Bureau data show, the highest annual total on record… New factories are rising in urban cores and rural fields, desert flats and surf towns. Much of the growth is coming in the high-tech fields of electric-vehicle batteries and semiconductors, national priorities backed by billions of dollars in government incentives. Other companies that once relied exclusively on lower-cost countries to manufacture eyeglasses and bicycles and bodybuilding supplements have found reasons to come home.”
“Manufacturing has always been an integral part of American life… Today U.S. manufacturing employment is holding steady at about 10% of the private sector, according to the U.S. Bureau of Labor Statistics, with nearly 800,000 jobs added in the sector over the past two years… Huge government incentives are stoking the frenzy. The Biden administration, seeing electric vehicles and semiconductors as matters of national security, has devoted billions of dollars to expanding those industries in the U.S. States are kicking in billions more.”
Why it matters: “The industry is actually hurting for workers—about 800,000 more are needed, according to the National Association of Manufacturers—leading to concerns that labor shortages and other bottlenecks could short-circuit the boom… David Mindell, a professor of the history of engineering and manufacturing at the Massachusetts Institute of Technology who co-founded a venture-capital firm investing in industrial transformation, said major cycles, from the development of interchangeable parts to the rise of the microprocessor, typically play out over several decades. The factory boom signals that the U.S. is at the start of a new cycle… ‘Manufacturing has been part of the American story from the beginning,” he said. “I see what’s happening now as a return to a more traditional way of doing things.’”
6. Why you shouldn’t worry about nuclear waste
Why you should read it: Pro-nuclear climate activist Madison Hilly pushes back against progressive concerns about nuclear waste in the New York Times, noting that
“Progressive lawmakers, along with environmental groups like the Sierra Club and Natural Resources Defense Council, have historically been against nuclear power — often focusing on the danger, longevity and storage requirements of the radioactive waste… So it’s no surprise that many Americans believe nuclear waste poses an enormous and terrifying threat. But after talking to engineers, radiation specialists and waste managers, I’ve come to see this misunderstanding is holding us back from embracing a powerful, clean energy source we need to tackle climate change. We must stop seeing nuclear waste as a dangerous problem and instead recognize it as a safe byproduct of carbon-free power.”
“There are many legitimate questions about the future of nuclear — How will we finance new plants? Can we build them on time and under budget? — but ‘What about the waste?’ should not be one of them… To date, there have been no deaths, injuries or serious environmental releases of nuclear waste in casks anywhere. And the waste can be transferred to another cask, extending storage one century at a time… But what about the spent nuclear fuel — isn’t it radioactive for hundreds of thousands of years? The way radiation works, the waste products that are the most radioactive are the shortest-lived, and those that last a long time are far less dangerous. About 40 years after the fuel becomes waste, the heat and radioactivity of the pellets have fallen by over 99 percent. After around 500 years, the waste would have to be broken down and inhaled or ingested to cause significant harm.”
Why it matters: “…waste should really be a chief selling point for nuclear energy, particularly for those who care about the environment: There’s not very much of it, it’s easily contained, it becomes safer with time and it can be recycled. And every cask of spent nuclear fuel represents about 2.2 million tons of carbon, according to one estimate, that weren’t emitted into the atmosphere from fossil fuels. For me, each cask represents hope for a safer, better future.”
7. How the Good Friday Agreement obscured the truth about the conflict in Northern Ireland
Why you should read it: On his Substack, British journalist Alex Massie writes that the Good Friday Agreement that brought peace to Northern Ireland 25 years ago allowed Sinn Fein and other republican partisans to deny the reality that it amounted to a defeat for their own political program and terrorist campaign.
“The peace process was a mighty, if imperfect, thing. It was built on the proposition winning was only possible if everyone lost. Those defeats were not divided equally and some stung more than others, in part because certain truths were so crushing - and yet also so sensitive - they had to be suppressed, lest uttering them damage anyone’s self-esteem… the biggest truth of all was rarely mentioned. This was the complete and total strategic and intellectual defeat of Irish Republicanism… The Agreement is a settlement, which is one reason why it is so hard to alter and so many are wary of even attempting to modify its provisions. On Good Friday 1998, Sinn Fein and the IRA abandoned their own history. Northern Ireland would remain a part of the United Kingdom for so long as its people wished to maintain that constitutional reality. There could be no change without consent. Neither the Brits nor the Unionist community could be bombed out of one country and into another. The IRA had been defeated in the field and Sinn Fein conceded that reality at the negotiating table. (It is typical of British politics that this significant victory for the police and security forces has been largely forgotten.)”
“…the Agreement marked and confirmed republican intellectual capitulation. Northern Ireland’s legitimacy was put beyond question, whatever you might think of the province’s origins or justification. In the south, the Irish Republic abandoned its (merely) symbolic claim to Northern Ireland, accepting in theory what had long been accepted in practice… That was a recognition that Sinn Fein and the IRA had to receive something in return, and to compensate for, the collapse of their intellectual tradition. Defeat at the strategic level required the Republican movement to be given a tactical victory. Prisoners, many of them appalling people guilty of gruesome crimes, would be released. Symbols of Ulsterness such as the RUC would be reformed and rebadged. And, for a long, long time, the IRA could keep their guns. These were functionally obsolete anyway and the failure to proceed with decommissioning helped persuade Unionists - some of whom keenly wished to be so persuaded - the Agreement was fatally tilted in favour of the Republicans. (Unionism, in all its varieties, may usually be counted upon to be its own worst enemy.)”
Why it matters: “Northern Ireland’s new normal is a kind of paralysed peace. The guns are silent (for the most part) but the Agreement, for all its genius, also confirmed the province’s irredeemable tribalism. You are one thing and if you are not that thing you are not the other. That is the official verdict, enshrined in the cross-community power-sharing - though power-dividing would be a better way of putting it - arrangements. Those who reject this have no official place in the architecture of power… The IRA were not the only guilty party - cheered on by certain simpletons and sympathisers, some of whom climbed higher up the Labour party than should ever have been possible - but they were the party most responsible for an unwinnable war of senseless cruelty. Where the British state has rightly, if imperfectly, attempted to make some amends for appalling acts committed in its name or under its authority (Bloody Sunday being the highest-profile), the Republican movement has never audited its own behaviour… Doing so would require an admission of guilt and responsibility and a frank acknowledgement it was all so very pointless.”
8. How Putin planned to play Baltic NATO allies
Why you should read it: For Yahoo! News, reporters Michael Weiss and Holger Roonemea reveal Russian plans to use concerns about climate change and environmental degradation to try and drive wedge between NATO’s Baltic member nations.
“The new [Russian] documents’ operation, with a focus on the environment, would appear to be another route for Russia to counter NATO in the Baltic Sea, a militarily strategic region for both sides. The Baltic Platform [plan] represents documentary evidence of how pro-Russian actors, in league with the Kremlin, are looking to instrumentalize issues like climate change and biodiversity to pressure Baltic nations to dial down their military and naval footprints in the region…Among other actions, the authors advocated that the pro-Kremlin press in Kaliningrad, a Russian enclave and the country’s only ice-free Baltic port, start ‘peddling catastrophic forecasts of the unstoppable growth of threats to the Baltic Sea and the Baltic ecosystem… The new plan was submitted as recently as January of this year to the Kremlin’s Directorate for Cross-Border Cooperation. This is the same organization, staffed with Russian intelligence operatives, that drafted the earlier Baltic strategy, according to the source who leaked it..’”
“According to the platform, a main goal is to ‘identify problematic (non-political) areas of interaction that require joint efforts in connection with the changed international situation and increased threats to the Baltic macroregion.’ The most ‘immediate and urgent challenges’ are “the anthropogenic and climate-related threats to the Baltic Sea, the environmental degradation of the Baltic Sea ecosystem and the need to reduce the consequences of the militarization of the region…’ The Baltic Platform document points out that environmental issues can be exaggerated — the ‘hyperbolization of individual problems and creating new ones, modeling catastrophic scenarios in order to call for a dialogue.’”
Why it matters: “While in its inaugural phase, the Baltic Platform may address these somewhat mundane ecological issues, the action plan describes ‘a progressive transition from the discussion of non-political topics to current political topics, with a gradual increase in the complexity and severity of the issues raised…’ This piecemeal approach is characteristic of Russian influence operations, particularly those designed to draw in noteworthy figures who would otherwise be averse to participating in anything with Moscow’s direct fingerprints on it.”
9. How and why the nature of inflation has changed over the past two years
Why you should read it: New York Times reporters Jeanna Smialek and Christine Zhang trace the twists and turns inflation has taken over the past two years, from its initial origins in supply chain snarls and overzealous pandemic responses to the war in Ukraine, higher energy prices, and an increase in the cost of services.
“What generated the painful inflation, and what comes next? A look through the data reveals a situation that arose from pandemic disruptions and the government’s response, was worsened by the war in Ukraine and is now cooling as supply problems clear up and the economy slows. But it also illustrates that U.S. inflation today is drastically different from the price increases that first appeared in 2021, driven by stubborn price increases for services like airfare and child care instead of by the cost of goods.”
“Fresh wage and price data set for release on Friday are expected to show continued evidence of slow and steady moderation in March. Now Fed officials must judge whether the cool-down is happening fast enough to assure them that inflation will promptly return to normal…In the months since [its July 2022 peak], inflation has slowed as cost increases for energy and goods have cooled. But food prices are still climbing swiftly, and—crucially—cost increases in services remain rapid.”
Why it matters: “In fact, services prices are now the very center of the inflation story… Housing costs have been picking up quickly for months, but rent increases have recently slowed in real-time private sector data… That has left policymakers focused on other services, which span an array of purchases including medical care, car repairs and many vacation expenses. How quickly those prices — often called ‘core services ex-housing’—can retreat will determine whether and when inflation can return to normal.”
Odds and Ends
Sir Patrick Stewart reflects on more than thirty-five years playing Captain Jean-Luc Picard of the starship Enterprise…
How a ten-plus foot sea level over four centuries rise forced the Vikings to abandon Greenland…
How the Smithsonian’s dinosaur fossils give scientists clues about the aches, pains, and injuries suffered by these terrible lizards tens of millions of years ago…
An ancient Roman necropolis unearthed near a Paris train station…
How NASA plans to keep Voyager 2 running more than 12 billion miles away from Earth…
What I’m Listening To
“Make It So,” a selection from the Star Trek: Picard third season score by Stephen Barton and Frederik Wiedmann.
“Since You Been Gone,” a late 1970s for Rainbow featured on the Guardians of the Galaxy Vol. 3 soundtrack.
“Days Are Gone,” the title track off Haim’s 2013 debut album.
Image of the Month
